WASHINGTON (TNND) — Medical debt will no longer appear on credit reports under a new rule finalized by the Biden administration on Tuesday.
The move to ban reporting of medical debt to credit bureaus, which can impact consumers’ ability to get a loan for a house, car or small business, will remove some $49 billion from the credit reports of 15 million Americans.
Vice President Kamala Harris also announced the administration canceled over $1 billion in medical debt using funds from the 2021 American Rescue Plan.
“This will be lifechanging for millions of families, making it easier for them to be approved for a car loan, a home loan, or a small-business loan. As someone who has spent my entire career fighting to protect consumers and lower medical bills, I know that our historic rule will help more Americans save money, build wealth, and thrive,” Harris said in a statement.
The Consumer Financial Protection Bureau said the new rule will also increase privacy protections and prevent debt collectors from using the credit reporting system to coerce people to pay bills they don’t owe.
“People who get sick shouldn’t have their financial future upended,” said CFPB director Rohit Chopra said in a statement. “The CFPB’s final rule will close a special carveout that has allowed debt collectors to abuse the credit reporting system to coerce people into paying medical bills they may not even owe.”
According to CFPB, the change will raise credit scores by an average of 20 points and help an additional 22,000 mortgages get approved every year. The agency said that medical debt is a bad predictor of a person’s ability or likeliness to repay a loan. Under the new rule, lenders will no longer be able to consider medical information when making a loan.
It comes after the three major credit reporting companies — Equifax, Experian and TransUnion — stopped including medical debt balances under $500 on reports in 2022.
